Renting out is the commonest type of investement for people . This is the only investment in India where there is an excellent tax benefit
Decision driver for a house can be derived from following matrix.
Example Case Study
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Gross take home salary |
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30000 |
(I) |
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Expenses monthly |
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Grocery |
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1200 |
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Milk @1 lts per day |
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600 |
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Tution fees for single child@ average convent |
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1500 |
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News paper |
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100 |
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Cable TV |
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300 |
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Internet |
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400 |
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Some personal loan emi/savings |
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2000 |
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Misc |
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2000 |
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Total |
8100 |
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House rent for 2 BHK |
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7000 |
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Net Expenses for rented house |
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15100 |
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Now for an average 2 BHK house purchase |
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Cost @2400 per sq feet for 1000 sq feet House |
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Cost of house |
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2400000 |
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Registration (Approx) |
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120000 |
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Parking(Approx) |
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100000 |
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Maintenance |
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50000 |
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2670000 |
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Loan amount eligible @ 90% |
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2403000 |
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At a thumb rule of cost of loan for 20 years @ 1000 Rs per lac EMI paying affordability is 24000 pm |
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Now Equation for purchase stand at |
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Month EMI |
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24000 |
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Expenses excluding rent |
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8100 |
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Total |
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32100 |
(II) |
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But there is first hinge a person drawing Rs 30000 pm is not eligible for 24000 EMI loan he can only get max 21000 EMI Loan. |
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For any person who pays a 24000 EMI shall get a Income tax benefit on RS 150000 per annum which is monthly benefit of RS |
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So this 3750 can compensate for the difference of 2100 between (I) and (II) |
Some important issues
If he moves to high cost city he needs something extra to shell over his rent he can get from investment
If person buys a house and moves to another city with low cost there is no issue
Pro's to buy house
Ownership
Investment which shall appreciate
No headache and no tenancy issues
First 5 years one has to walk on a tight rope but later salary improves positively
House is not the only priority
One also gets some benefit for the rent paid as against the HRA received
CON's to buy a house
Commitment of Rs 24000 pm is big commitment for 20 years
Pro's for Renting
There is choice for house
There is no ownership and so it is tension free
If one does not like place or locality one can move on
Convinient and close option to working plsce which may not be case in buy out.
Con's for Renting
You have to search for new houses every 11 mths
There is additional brokerage expense every 11 months
Freedom to operate the house does not exist
